Reduction in RET will increase bills: AGL report

Tinkering with or abolishing the federal government’s renewable energy target (RET) would result in higher borrowing costs for new projects in renewable and gas-fired generation, and increase the cost of power for consumers, a study shows.

The findings in research by
AGL Energy
, which supports the existing RET of 45,000 gigawatt hours in 2020, about a fifth of total capacity, contradict analysis by rival energy companies TRUenergy and
Origin
that a reduction in the target to account for lower demand would cut the cost of power to consumers.

But the AGL research factors in higher debt cost due to policy uncertainty caused by RET changes, as well as the lower costs of meeting the target. It finds the net cost to electricity consumers of repealing the RET is $51 million, rising to $119 million if it were significantly amended instead. The findings reflect earlier AGL research on the impact of uncertainty over the carbon price on the cost of borrowing.

“It is a very counter-intuitive conclusion, that amending the renewable energy target by reducing the target is actually more expensive than just seeing the thing play out," said one of the report’s authors, AGL head of economics Tim Nelson. “The net result is that either repealing it or effectively lowering the target not only reduces the amount of renewable energy deployed but it is also a net cost to consumers because of the higher wholesale costs flowing through."

Already renewable-energy certificates for large-scale projects are trading at a discount to account for existing policy uncertainty caused by past changes to the scheme and by this year’s review by the Climate Change Authority. “The efficient price (based upon market fundamentals and assuming perfect information) is 17 per cent higher than the actual market price," the AGL research says.

“Most market participants are in a hold pattern until they [understand better] what the Climate Change Authority is going to recommend and then what the government will respond with. The project financial professionals we surveyed took the view that the cost of finance would be higher for both gas and renewables if the RET was significantly amended."